Investors to focus on a company's asset quality as a flurry of insurance IPOs line up

The investor community is bustling with activity even as multiple investment banks have been engaged by insurance companies for the process of valuation, quantum of stake sale, pricing and timing of the issue.

The year 2010 was a significant milestone for the insurance industry when it completed ten years of privatisation.

It was informally agreed that large players would move to the initial public offering (IPO) route and the market was abuzz with names of likely candidates to list on the stock exchanges. But, no player decided to list. Seven years later, six players are lining up IPOs while ICICI Prudential Life Insurance listed in 2016.

The investor community is bustling with activity even as multiple investment banks have been engaged by insurance companies for the process of valuation, quantum of stake sale, pricing and timing of the issue.

While one may think too many public issues from one sector may fail to gain substantial interest, market experts said that the quality of the company will be the key focus.

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Nipun Goel, President and Head, Investment Banking, IIFL “In terms of the assets that are going to list, most of them are very high quality assets. For the right kind of assets, there is enough and more demand."

He added that they don’t see any issues with respect to demand because investors are hungry for high quality papers. Goel also added that the appetite for primary papers is quite strong.

SBI Life Insurance which has filed the draft red herring prospectus (DRHP) with Securities and Exchange Board of India (Sebi) is likely to bring out the largest initial public offering (IPO) in the insurance space. Sources said that the insurer could raise as much as Rs 8500-9000 crore from the IPO.

Once listed, this would be the second life insurer after ICICI Prudential Life Insurance to be listed on the stock exchanges. Currently, only insurance company is listed in India.

Similarly, private general insurer ICICI Lombard General Insurance has also filed the DRHP with Sebi for a public offer. This includes upto 86.24 million equity shares of face value of Rs 10 each of ICICI Lombard General Insurance Company.

Joydeep K Roy, Partner and Leader-Insurance, PwC India said that there will be a good demand for the public issues by the insurers because investors have a good mix of companies, including public sector insurer, private life insurer, private general insurer and reinsurer, to choose from.

"While it was expected that players would list after ten years, the markets went down during that time. Hence, insurers waited for sometime," Roy added.

While a reverse listing of an insurer was also anticipated, that did not happen as the Max Life merger with HDFC Life was called off. HDFC, in the meantime, has informed the stock exchanges that they are planning to sell 9.57 percent stake in its subsidiary HDFC Life Insurance via an initial public offering (IPO).

Market experts said that the timing of the issues will also be crucial and it is imperative that they are spaced appropriately. For instance, it is expected that the government may bring out only one IPO among the four state-owned insurers and one reinsurer in tbis fiscal whike the rest will come out in the subsequent yearsr.

Sources said that while all the five state-owned general insurers will be listed within the next two years, the government will not hurry into the process.

In January, the Cabinet gave its approval to the four public sector general insurers as well the state-owned reinsurer General Insurance Corporation of India (GIC Re). A senior official associated with the process said that it is likely that only GIC Re could be listed in this financial year.

Among non-life insurers, Reliance General has also announced its plans of listing on the stock exchanges. The insurer will divest 10 percent by way of an IPO and plans to complete the process by the end of this financial year.

Till now, only two insurers have filed for an IPO with Sebi. The others are either in the process of appointing bankers or finalising the DRHP fineprint.